The Working Time Directive (WTD) is EU legislation that gives all workers in Member States the right to at least four weeks (20 days) paid leave per year for workers who work five days a week. This is adapted into UK law through the Working Time Regulations 1998 (WTR), which also grants an additional 1.6 weeks of paid leave.
Payment during periods of holiday is based on normal working hours. Despite this, a major issue recognised by both UK courts and the EU Court of Justice (CJEU) is the extent to which voluntary overtime might need to be included in calculations of holiday pay.
The claimants in this case worked under contracts which incorporated the NHS Terms and Conditions of Service. Due to the nature of their roles, they were all required to work shift overruns in specific situations, such as the shift ending in an emergency. In these situations, which were referred to as ‘non-guaranteed overtime’, the claimants were paid at a rate of time and a half.
In addition to this, the claimants were also offered voluntary overtime shifts. There was no contractual obligation on them to work these shifts and the Trust would be prepared to make alternative arrangements if the claimants were not available, such as using bank or agency staff.
Pay for their annual leave was determined in accordance with section 13.9 of the Trust’s handbook, which outlined the following:
‘Pay during annual leave will include regularly paid supplements, payments for work outside normal hours and high cost area supplements. Pay is calculated on the basis of what the individual would have received had they been at work.’
As the pay the claimants received whilst on annual leave did not include their non-guaranteed or voluntary overtime, they therefore brought a claim to the employment tribunal (ET) for unlawful deductions from pay.
In the first instance, the ET held that the terms and conditions outlined in the handbook entitled them to have their non-guaranteed overtime taken into account but not their voluntary overtime.
Distinguishing between the two types of overtime, the ET stated that the non-guaranteed overtime did not permit the claimants to leave their job in times of an emergency and was a part of their contractual obligations, meaning it should be included in holiday pay. However, the voluntary overtime was not compulsory, followed no clear pattern and was not depended on by the Trust, therefore it could not form part of their pay for annual leave services.
The Employment Appeal Tribunal (EAT) overturned this decision, finding that the voluntary overtime should also be included.
They outlined that the overarching principle of the WTD was that normal remuneration must be maintained in respect of the period of annual leave granted by it. Thus the payments in that period must correspond to the normal remuneration received while working. Whilst items which are not usually paid or are exceptional do not count, items that are usually paid and regular across time may do so.
The EAT held that one decisive criterion or test for determining whether a particular component of pay is part of normal remuneration is where there is an ‘intrinsic link’ between the payment and the performance of tasks that the worker is required to carry out under their contract of employment. On the correct construction of the contract, there was no basis to distinguish between non-guaranteed and voluntary overtime and the claimants were contractually entitled to have both taken into account in the calculation of holiday pay.
COURT OF APPEAL
The Trust appealed against this decision to the Court of Appeal, who dismissed their appeal, agreeing that voluntary overtime should be included in the claimant’s holiday pay.
The Court outlined that previous CJEU case law clearly establishes the question is whether the pattern of work is ‘sufficiently regular and settled’ in order for it to amount to normal remuneration. There is no separate requirement that the hours of work are compulsory under the contract.
Note for employers
Whilst organisations are now encouraged to consider if any voluntary overtime worked is ‘normal’ or ‘regular’ the Court has not actually defined what this should mean in order to avoid organisations simply restricting overtime to stay below any limits set by the Court. It is therefore advisable to exercise a degree of common sense; the more frequently the individual works the overtime, the more likely it will be viewed as regular and settled. The consideration realistically will be if it is considered typical within the relevant payment period.
It should be noted that this only applies to the annual leave provided by the WTD, which is four weeks. We would also remind organisations that although this is currently the highest decision on including overtime in holiday pay calculations, and future tribunals will apply this ruling going forward, this decision could still be appealed to the Supreme Court.